Economics lesson of the day

Independent Bookstores Stage a Comeback. While pressure from Amazon forced Borders out of business in 2011, indie bookstores staged an unexpected comeback. Between 2009 and 2015, the American Bookseller Association reported a 35% growth in the number of independent booksellers, from 1,651 stores to 2,227.

Borders was a direct competitor to the Indie bookstore. Amazon is a substitute for.

The removal of some 700 (approx, Borders plus other brands) direct competitors has a different effect than the continued expansion of a substitute.

Gee, ya think?

Ford and GM sell cars in Austin TX (only they two). Austin builds a metro. GM remained bankrupt. Does Ford sell more or fewer cars in Austin TX?

Agreed, could go either way but we’d not be surprised if more, would we?

Interesting definition of monopoly

Then they can process data into intelligence, which can be packaged and sold to third parties for large profits, akin to monopoly rents.

Selling intelligence is akin to a monopoly?

Another key rule these corporations are seeking would allow digital services corporations to operate and profit within a country without having to maintain any type of physical or legal presence. But if a financial services firm goes bankrupt, how can depositors seek redress? If a worker (or contractor) for the company’s rights are violated, or a consumer is defrauded, how can they get justice? And if the company does not have a domestic presence, how can it be properly taxed, so that it is on a level playing field with domestic businesses? Most countries require foreign services suppliers to maintain a commercial, physical presence in the country to operate for just these reasons

Well, no, no they don’t.

How excellent this is

At first glance the photos vaguely resemble a painting. On closer inspection it might be a giant sculpture or some other art project. But in reality it is a mangled pile of bicycles covering an area roughly the size of a football pitch, and so high that cranes are need to reach the top; cast-offs from the boom and bust of China’s bike sharing industry.

Just two days after China’s number three bike sharing company went bankrupt, a photographer in the south-eastern city of Xiamen captured a bicycle graveyard where thousands have been laid to rest. The pile clearly contains thousands of bikes from each of the top three companies, Mobike, Ofo and the now-defunct Bluegogo.

No, really, it is wondrous. And it’s the Commie Chinese that have done it too.

We want, irrespective of anything else about the economy, a method of testing ideas to see if they work. Does the application of these scarce resources meet some human need or desire? Does it do so more than an alternative use, is it even adding value at all?

Bike shares, are they a good idea or not? The underlying problem being that expressed and revealed preferences aren’t the same. There’s only so far market research can take you, at some point someone, somewhere, has to go out and do it and see.

Excellent, the Commie Chinese have done so. Vast amounts of capital thrown into this, competing bike share companies, hire costs pennies. And no fucker seems very interested. That is, no, large scale bike share schemes don’t meet any discernible human need or desire, they don’t add value, spending the money on something else will increase human joy and happiness better.

And this is excellent, we’ve tried the idea and it don’t work. Now we can abandon it and go off and do something else therefore.

Which is the great joy of market based systems. They’re the best method we’ve got of finding out which ideas are fuck ups.

Long live markets.

Nonsense twatty stupidity over stamp duty

Helping first-time buyers is noble, but movers need a stamp duty cut too, says SIMON LAMBERT… and perhaps the seller should pay

Incidence, incidence!

However, the general whining over on the left is that this won’t reduce house prices. So,? And?

Transactions taxes gum up a market, make it less liquid. That’s why they’re such bad taxes. Their deadweights are hugely high as compared to income, consumption or land taxes. They’re actually even worse than capital and corporate taxes in this manner.

So, get rid of bad transaction taxes, raise other less bad ones for a neutral overall stance and we’re better off just be changing how we tax, not the level of taxation.

Interesting factoid – the IFS has an old paper out there pointing out that stamp duty on shares, total revenue will rise upon its abolition such are the deadweights of transactions taxes. Another factoid – the EU insisted that a financial transactions tax would lower total revenues, such are the deadweights. I wouldn’t want to insist that this would be true of stamp duty on houses but it wouldn’t surprise me if that were the outcome as well.

Transactions taxes are bad taxes, we shouldn’t have them.

Ain’t this great?

From AJPS, the flagship political science journal:

The American Journal of Political Science published a correction this year saying that the 2012 paper has “an error” — and that liberal political beliefs, not conservative ones, are actually linked to psychoticism.

“The interpretation of the coding of the political attitude items in the descriptive and preliminary analyses portion of the manuscript was exactly reversed,” the journal said in the startling correction.

“The descriptive analyses report that those higher in Eysenck’s psychoticism are more conservative, but they are actually more liberal; and where the original manuscript reports those higher in neuroticism and social desirability are more liberal, they are, in fact, more conservative.”

Stefan Stern swings and whiffs

DIY economics
The (genuine) economist John Kay has a term for all this: DIY economics. These are the things that we sort of think we know even if they have no basis in theory, or indeed practice. Like a dodgy shelf, DIY economics will come crashing down at your feet sooner or later.

OK, so, on his list of things which are DIY economics (what I refer to as folk economics) are the following:

Expansionary fiscal contraction
This is the theory, popularised by Ken Rogoff and Carmen Reinhart, which holds that public debt levels of over 90% of GDP will lead to slower growth, and that therefore significant cuts to public spending – aka austerity – are needed before growth can resume. George Osborne built a political programme and reputation on it.

Embarrassingly, the distinguished academics had to concede later on that there had been an error in their spreadsheet calculations, and that the theory was not quite as robust as had been asserted. Voters are now taking a similar, but less nuanced, view on the benefits of austerity. So on second thoughts, wannabe chancellors might not want to trumpet this one too loudly.

No. It’s the idea that you can indeed have fiscal contraction but if you offset it with an even bigger dose of monetary expansion then you will get growth. It did actually work in 1932 as well, whatever we might think about it having done so more recently. That is, properly stated, it’s an entirely fine idea although whether it works in all and every circumstance is another matter.

Zero lower bound

Years of ultra-low interest rates produce this phenomenon, whereby the central bank (the Bank of England in our case) can no longer stimulate the economy as rates are at rock bottom. The recent tweak up to 0.5% is the first move away from the floor that had been established. But the fact that rates will probably remain low for many months to come is a sign of economic weakness, not strength.

No. Zero lower bound insists that monetary policy is ineffective if you cannot reduce interest rates again, as they are zero. QE has rather proven that that is wrong. Still entirely possible that fiscal policy would have worked better etc but the insistence that monetary cannot is proven to be wrong.

Laffer curve

This is a remarkable piece of economic wishful thinking, drawn up on a restaurant napkin, which states that cutting taxes for the rich will always and inevitably lead to economic growth, wealth trickling down and the reduction of government deficits. Ronald Reagan tried it in the 1980s. The deficit soared.

No, it’s simply the (true) observation that at times lower tax rates can increase revenue collection.

Forward guidance
This was the idea touted by Bank of England governor Mark Carney, that by indicating where interest rates and the economy were generally heading, more influence could be exercised without the need for market interventions. But markets and economic data have defied the guidance. We don’t hear much about this any more.

Expectations – if the BoE says interest rates are going to rise then market ones rise immediately. This works.

Stefan Stern is the co-author of Myths of Management, and a visiting professor at Cass Business School

Oh, he works with the Senior Lecturer…..

Dani Rodrik trips over language

Odd really, for like many non-native speakers he often sees the little bits that others don’t.

As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over cultural norms, and private entrepreneurship over collective action. It has been used to describe a wide range of phenomena – from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and the UK’s New Labour to the economic opening in China and the reform of the welfare state in Sweden.

The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash.

We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal’s Manifesto. It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.

“Neoliberal” has an English meaning and an American one. Thus much of the confusion here.

An American neoliberal is indeed that American liberal who thinks that markets are perhaps better than unions and regulation at achieving the standard American liberal goals. Brad Delong would be a good example. Hmm, perhaps we should revise that to sometimes markets are the better method of achieving those goals.

In English the meaning is much closer to something like a classical liberal with libertarian tones or influences. Not full on Randite but definitely different from that American meaning. I might be an example of a neoliberal in this English sense.

At which point Rodrik is correct all the same:

But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship or incentives – when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.

The argument is about “appropriate” nothing more. Very few indeed are going to argue that we should organise the military on private entrepreneur lines. We tried that with the Wars of the Roses and didn’t like it. There are actually those who argue that all housing should be state, not market, provided. Something, in my view at least, equally inappropriate.

Good economists know that the correct answer to any question in economics is: it depends.

Yep.

By the time the economist stops, it appears as if he has laid out a fully fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. And yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy – one in which investment decisions are made by private individuals and firms – but not much beyond that. They allow for – indeed, they require – a surprising variety of institutional arrangements.

So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term – incentives, property rights, sound money – with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map on to a unique set of policies, approximated by a Thatcher/Reagan-style agenda.

Entirely true. It’s the results there we want, not the particular method of getting there.

Still, these principles are not entirely content-free. China, and indeed all countries that managed to develop rapidly, demonstrate the utility of those principles once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability and private incentives.

Quite so.

And there’s an explanation for this:

This, too, can be illustrated with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor’s advanced graduate seminar on international trade. He poses the same question: is free trade good? This time the professor is stymied. “What do you mean by ‘good’?” he responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s wellbeing.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s longterm growth rate is not clear either, and would depend on an altogether different set of requirements.

This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer, regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?

Terry Pratchett called this “lies to children.” Feed people the information appropriate to their understanding of the matter at hand. For the 99% of people who don’t really think very much about economic policy a general assumption that free trade is good is a very decent starting point. There are indeed caveats – not quite as many as Rodrik says but some – but they’re not what needs to be generally known. It isn’t necessary for everyone to know Einstein’s equations, that the apple falls downwards from the tree is enough.

The nuance is only important when it matters.

Hah!

In the 1980s, the Soviet Union was famously described as “Upper Volta with rockets”.1 This unjustly disparaged the history and culture of the country now known as Burkina Faso.

That’s one way to open an economics column.

How damn stupid do you have to be to work for NEF?

Miatta Fahnbulleh, a former academic turned policy wonk who has worked for three prime ministers and the Labour party, is not your typical thinktank chief.

Fahnbulleh arrived in the UK from Liberia in 1986 and her family successfully claimed asylum in the UK, settling in Tunbridge Wells, Kent. “My childhood in Liberia had a massive impact,” says the 38-year-old. “You see abject poverty and extreme wealth, you see how the family you were born into affects your life and you understand why inequality is wrong. It’s not just that it perpetuates itself, it’s that it’s fundamentally wrong and it needs to be changed. And that’s my core, that pursuit of economic justice.

“Coming from two of the poorest countries in the world [Fahnbulleh also witnessed the deprivation in her mother’s home country, Sierra Leone] and seeing kids forced to fight in the civil war and being robbed of their childhood can’t help but colour your values,” she says. But while the economic and social injustices in Liberia are extreme, the UK is far from an egalitarian oasis, she says.

You’ve seen true, real, absolute poverty, the less than $1.90 a day kind. Actually experienced it around you.

Then you’re going to spend your professional life wibbling about inequality in the only economic system, ever, which has abolished that absolute poverty?

How damn stupid do you have to be to work for the new economics foundation then?

Quite so, quite so

Philip Hammond must scrap stamp duty on property sales to solve the housing crisis and boost the economy, a think-tank warned last night.
The Adam Smith Institute said the ‘damaging’ tax – which raised £11.7billion last year – stopped Britons moving jobs and kept them in houses too large for their needs.
By penalising older people for downsizing, stamp duty makes the number of larger homes on the market for growing families even smaller.

Transactions taxes are a bad idea.

We could even say, in fact we should, that stamp duty raises the unemployment rate. It’s actually well known that an owner occupier rate which is “too high” increases unemployment. It costs to sell and move. So, if regional employment patterns change “too high” an owner occupier rate makes labour immobile. There’s also the point that without a vibrant private (social housing is even more immobile that owned, making the problem worse) rental market, which is the inverse of course, it’s not possible to move as swiftly as one might need to for those employment reasons.

Stamp duty increases that cost of moving, increasing the immobility of labour, thus raising the unemployment rate.

This is one of those things, as with so much in economics, which is undoubtedly true. But that’s not enough, there are many effects which are true and some will be working in the opposite direction as well. What we want to know is whether this is both true and important, is it a large enough effect to make a difference?

As best we know, yes. It’s a large enough effect that it can be measured, people have done it and proven it. That is, just the immobility of labour due to a high owner occupation rate is large enough that we can measure the effect.

Thus, presumably, stamp duty makes it worse.

Having now looked at it I recommend this paper. Really rather good.

It would appear that market competition works then

Sex workers in a major British city are said to be selling their bodies for as little as £4 – with prostitutes blaming an influx of Eastern European competitors for pushing down prices.

More producers, lower prices to consumers. Perhaps we could use this insight to explain something about our world?

The documentary tells the story of crack addict Natalie, who works on the streets to fund her habit.

That might have more to do with it to be honest. Or this:

A man named Jack, who lives with Natalie, blames Eastern European sex workers for flooding the market and slashing prices.
He claims women come from as far as Serbia and Croatia and sell sex for rock bottom prices.
He said: ‘They’re absolute stunners. But the local girls… Sometimes I have to lend them my teeth.’

The details of wealth

The Senior Lecturer:

The Guardian reported the emergence of a new ‘gilded age’ yesterday as the concentration of the world’s wealth in the hands of a relatively few families reached levels not seen since the era before the First World War.

Hmm. That’s the UBS report.

The one thing it doesn’t tell us is about the concentration of wealth. Yes, it says that billionaires’ wealth rose 17% to $6 trillion. But it doesn’t tell us about concentration. We get no figure at all for the world’s total wealth. So we don’t actually know what percentage this is.

We might have a stab at it. Household wealth in the US is around $90 trillion. There’re what, about 3x the US population we might describe as rich world people? So, just to have a number, rich world household wealth is $300 trillion?

Some 1500 people have 2% – should we be worried?

Total US wealth (adding in all the Feds own etc) is more like $200 trillion. So, rich world wealth is $600 trillion. 1% in the hands of 1500 people?

I don’t insist on calling it either way here, just want to point out the bits we’re not being told.

Where I would insist on calling it out is that wealth isn’t the thing to be worrying about. Absolute income is. While we’ve still absolute poverty I really don’t care about the top. I care about the absolute poverty. Something which the current arrangements are reducing faster than any other set of actions ever have in the history of the species. Seems to me we’re doing something right therefore.

And thus we should continue doing it, globalised free market capitalism it is then.

What an amusing allegation

A drug company that imposed huge increases in the price of medicines for British patients has filed for debt restructuring, raising fears over its financial health.

Concordia International, which was previously called AMCo, announced yesterday that it was beginning proceedings under Canadian law in an effort to reduce its debts by more than $2 billion. It follows a catastrophic fall in its share price that has resulted in its market value declining from about $1.5 billion to $30 million since The Times published an investigation into drug pricing in June last year.

The drug company was one of several businesses exposed by this newspaper for using a loophole in NHS pricing rules to increase the cost of medicines. The pharmaceutical companies were able to circumvent profit caps by dropping brand names and relaunching products as unbranded generics. The NHS relies on market competition to keep prices down in such cases but the drugs involved often had only a single supplier.

If it’s not able to make a profit then it’s not obvious that it is overcharging, is it?

Well, yes, there’s a point here

A family-of-four who live on a council estate in Southampton were given a taste of a different life by swapping with a millionaire couple from Wiltshire for a week.
The Leamon and the Fiddes families are participants in a new series of Channel 5’s Rich House, Poor House, which sees a family from the richest ten per cent of British society swap homes (and lives) with a family from the poorest ten per cent.

However, viewers took to Twitter to insist that Andy and Kim Leamon and their two children from Southampton who have £170 a week to spend on food, clothes and socialising after paying their mortgage and bills are certainly not struggling.

It’s not, by local standards, exactly great riches, to be sure. But that is £2,210 of disposable income per person per year. That’s on the fringes of the top 30% of all global incomes. 70% or so are poorer.

Note again, this is their disposable income, after housing, bills and taxes, the global income number is before all of that. Or, as we might also put it, this is unimaginable riches by global or historical standards.

So we’re told about Victorian poverty

In The Guardian, of course, a reply to which being:

“The solution he proposed was what he called a “universal pension for life”, or what we now call a universal basic income.”

Excellent, we now have this. It’s called the welfare state. Wages for an unskilled worker in Dublin in 1900 were some 20 shillings a week. That’s, accounting for inflation, some £350 a week today. Obviously, a rough number. The benefits cap is some £390 a week currently.

Note that our unskilled labourer isn’t quite what Shaw was denouncing as that poverty, that destitution. But still, we’ve a guide there. Society today is so vastly richer that what, back then, was considered a basic working wage is today what people do get, around and about, as a universal income. No, I don’t say that everyone gets near the benefits cap today but there’s certainly no one at all living in Shaw’s poverty.

So, we’ve done it.

What’s left is relative poverty, not absolute poverty. Note that even Barbara Castle agreed, 40 years ago, that true penury had already been abolished back then.

People really do, as here, forget quite how poor the past was, quite how different their definition of poverty to our.

It doesn’t matter, it just doesn’t damn matter

Workers in the constituency of shadow chancellor John McDonnell are at the highest risk of seeing their jobs automated in the looming workplace revolution that will affect at least one in five employees in all parliamentary seats, according to new research.

The thinktank Future Advocacy – which specialises in looking at the big 21st century policy changes – said at least one-fifth of jobs in all 650 constituencies were at high risk of being automated, rising to almost 40% in McDonnell’s west London seat of Hayes and Harlington.

Terrors!

Of the 92,150 employees in Hayes and Harlington in 2015, 36,170 (39.3%) were at high risk of having their jobs automated by the early 2030s.

Aha! 15 years in the future.

Jobs churn is 10% per annum for destroyed and recreated jobs, another 10% for quits and hires. There’s at least some technological movement in near all of these changes.

We expect somewhere between 150% of all jobs and 300% to change, technologically, over this same period. Just as has been happening these past 250 years.

It just doesn’t matter. It happens tomorrow then we’ve a late 20s (for the UK) early 30s (for the US) type problem. Over 15 years? Pah!

Of all the idiot suggestions

And a report from University College London’s Institute for Global Prosperity is advocating that UK citizens should receive free housing, food, transport and internet access to deal with that same daunting possibility.

They don’t actually say free food either, they say free meals.

Yep, the idea is that government cook lunch for poor people. Obviously, organic, no salt, no sugar, vegetable heavy. Won’t the poor be grateful. The Morris Marina of comestibles.

Sheesh, this violates the most basic stricture, always, but always, subsidise people, not things. What is more valuable to you, £10 to buy lunch with or a lunch provided to you that cost £10? £10, obviously. Because you can spend £5 on lunch and £5 on dinner, or beer, or soap.

These people are so fucking stupid they’ve just not grasped why food stamps sell at a discount to real cash money. Idiots, morons.